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Massive Breakouts

David John Hall — Tue, 22 Mar 2011 21:20:56 -0800

I'll admit, I like to try crazy things in the market -- because I'm just that nuts. I get an idea and I follow through. I backtest, forward test and throw money at whatever I think is a good idea...until it becomes a not good idea or it becomes a GREAT idea and one I keep. Best of all, I put all of that stuff down here for you, dear reader, to share in.

The latest idea is follow-through on massive range breakouts. Specifically, stuff like this:

Do you see that crazy second day move there? That's what we're after. We're after a move where most traders couldn't POSSIBLY imagine a move happening. Especially not me. I liken this to surfing on a HUGE day.

If you know me at all you know that I love to surf and I've been tearing up waves for 20+ years. Anyway, whatever, that's not my point. My point is that trading a stock like this is like taking off on a 15 foot wave that's all wall. It's freaking scary as heck and you have to commit. And if you don't know what you're doing, you're going to wipe out.

Well, in case you haven't guessed, there's only one way to get to a place where you know what you are doing -- and that's to wipe out -- a LOT.

So take a look at this bad boy. Same concept. only this is the first day of the breakout.

BOSC -- I know -- I'm almost a joker for even suggesting this. It looks crazy. A 27% gain today -- a very real possibility of crash and burn tomorrow. But you know what -- bring it! This looks like a toasty trade to me. And besides, take a look at the day before on PRAN:

Um, yeah, that's an 83% move the day before! Stay posted, this is going to be fun!

And remember people...the Market is Yours!

RetailTrader X

Don't Fret -- Be Random

David John Hall — Tue, 8 Mar 2011 18:54:17 -0800

How much do you fret over individual trades? Are you always looking up quotes, checking your iPhone for mobile quotes, looking at graphs, the same graphs, again and again. Does this help?

If you think it does you might want to read Trading in the Zone by Mark Douglas. Then you might want to read it again. Why? Because Douglas tells us that the distribution of returns for any given method or system is random. That's right. Unknowable and random. This next trade might be your biggest winner all year or your biggest loser and you won't know...until it's over.

So why stress? Why not just take the trade and move on, looking for the next. Why not just enjoy the randomness of it all and make sure your money management rules (the real reason you make or don't make cash) are in place -- then hit the beach -- you've earned it!

TRENDS WILL RUN YOUR ACCOUNT INTO THE GROUND...

David John Hall — Tue, 8 Mar 2011 18:50:03 -0800

...if you trade against them.

That's because trends last longer than anyone thinks. They always do. And in their wake they leave scores of trampled stock market masterminds who were convinced they knew exactly what they were talking about. Why does this happen? Because traders don't believe anything. Seriously. It's true. They're a very skeptical bunch. Maybe it's because so many trends fail...when one of those pesky things does actually go off it's just simply impossible to believe. Maybe.

Trends go on and on and on and on and on. And on and on and on and on. And all the while short sellers hunt for the top. In downtrends, bottom feeders hunt for the bottom. This only makes trends go on even longer.

When's the last time you caught a really good trend? Did you catch the whole thing? Did you jump off too early and watch it go on and on and on and on without you? Did you hate yourself?

The trend is your friend. So be nice to it.

You are NOT a trading ROBOT! How to Release Emotions In Your Trading.

David John Hall — Sat, 26 Feb 2011 09:04:20 -0800

Your system has just suffered 4 or 5 losses in a row. A breakout that was charging higher hits a patch of bad news and gaps lower...by 15%. A value play turns out to be value-less and enters BK. You break one of your rules and add to a loser...twice.

All of these events have the potential to cause you MUCH pain as a trader. How you react to them will decide how much pain they do eventually inflict. Or rather how much pain YOU inflict on yourself.

Sometimes, in the market and in our trading, we act like trading superheros and make the right decision at the right time and the matter is handled. Other times we act less heroically and compound bad decisions with more bad decisions...and more bad decisions...and even MORE BAD DECISIONS! Either way, every once in awhile you will be faced with some pretty painful emotions. How you handle those emotions could wreak havoc on your trading for weeks to come.

The great poet Robert Frost said, and I paraphrase "The best way out is through..." and I have to agree. Sometimes, it's the only way out. What I mean, and what I think Frost means, is that to move beyond a stuck position, your best alternative is to experience it, to fully appreciate it and the full extent of the emotions attached to it, and move through them to the other side of growth and understanding. I have said that my keyboard smashing days are over...and they are. But every once in awhile a trade, or a series of trades, comes along that really gets me. Most of the time I recognize the impact right away and I stop trading and I deal with it (more on that in a bit). But other times I avoid avoid avoid until the hidden emotional pressure is so great that EVERY aspect of trading goes in the crapper until I face it.

For an example, take a look at this chart of NTRI:

Now this isn't a trade that I was in (Thank you trading God) but imagine for a second that you were. Ignoring the fact that you probably should have been out of this after the breakout failed, imagine that you broke this rule and stayed in. And you got hit. Hard. How do you think this would feel? I'm guessing you would agree it would feel pretty crappy. Am I right? Now, imagine that you tried to hide that feeling? How would that feel?

John Bradshaw, author of Healing the Shame That Binds You states that hiding feelings from ourselves is akin to trying to hold a beach ball under water. It takes great effort, and when you finally do release it, what happens? That's right, it explodes above the surface. That's why today I am advocating that the best way out is through. If you're pissed at yourself for breaking a rule, be pissed.; If you're depressed because you see your goals of financial independence disappearing faster than NTRI's market value, be depressed. If you're confused because you don't know what the HECK just happened, be confused! Above all, be honest with yourself. Be true to yourself.

Now, I think it's important to note that I'm not suggesting you launch keyboards and computers across the room, because that's not a healthy expression of your feelings. Why? Because, in the long run, that will cost you even more money! LOL But if you need to hit a heavy bag, or yell or scream or mope or cuss or anything that's not going to hurt you or someone else -- then why not have at it? My favorite way to do this is in a trading journal. A simple composition book I keep with me at all times that I can turn to to write down all manner of thoughts about the market -- and when something goes wrong, it's the first place I go. Then, when I'm done with that it's out for a bike ride, or a surf session -- to let myself know that there's more to life than trading and wealth accumulation.

So give it a shot. Next time you think that you're supposed to be a trading robot, realize that you're not a robot. You're a human being. And part of being a human being is having emotions. And part of being an evolved human being is recognizing those emotions, expressing them, and learning from them.

Until next time...the market is YOURS!

The Stock Market Crash - And How to Avoid it in One Easy Step

David John Hall — Thu, 24 Feb 2011 03:36:16 -0800

Stress. Stress. Stress. That's what seems to drive most traders in the days since the stock market crash of 2008. Will the stock market crash again? Is the stock market crashing now? Is the stock market starting to crash?

I hear these thoughts, and thoughts just like them, echoed on tons of trading message boards daily. So much so that I thought I'd create a post detailing a simple technical indicator that I use to alert me of any pending major stock market crashes and will give you plenty of time to get out if we do happen to run into another one.

Can there really be such a thing, you ask? An indicator that warns of pending stock market crashes? An indicator that will allow me to get out of the market before all of my hard earned capital evaporates? Yes, I tell you. Yes, yes, yes. What's that amazing stock market crash predictor you ask?

Price. That's right, folks, price.

Sounds ridiculous, right? Price isn't an indicator? Is it? Um, yes, it is. And it was the first one around. See, when prices are going up, like this 100, 101, 102, then the market is going up. When prices are going down, like this 100, 99, 98, then the market is going down.

Think I'm kidding? Think again. If investors used this simple idea in the stock market crash of 2008 they would have saved themselves a TON of cash and heartache. Think about it. In the crash of 2008 prices went down down down and along the way investors kept trying to bottom fish. All the while losing more and more equity.

Now, if you really want to get tricky and you really need to draw a squiggly line on your chart, then let's bump it up a notch and put a moving average of price on your monthly chart of the market -- a 13 month moving average and decide that if PRICE ever closes below that moving average (key word being CLOSES) then the very real possibility of a stock market crash exists.

To give you a visual example, take a look at these two charts. One of the stock market crash of 1929, and one of the stock market crash of 2008. Here they are:

Do you see the crash? Do you see the moving average? Do you see the white circle showing the exit before the stock market crash of 1929? Do you see how you would have closed out your positions and stayed out till after the bottom ?

Now, here's the stock market crash of 2008.

Do you see again? Here you would have been out in 2007, well before the stock market crash of 2008? True, you wouldn't have caught the exact bottom but I think it would have been worth it not to be trading during 2008...don't you?

So there you have it. My very deep and profound method for avoiding stock market crashes. Is it perfect? No. There will be false signals (we just had one) and you will never get out at the exact top and the exact bottom, but that's life in the market and the price you pay for not stressing out all the time. in case you need one, here's a chart you can go to to keep your eye on this indicator. I hope this helps you sleep well at night and de-stress a little. But something tells me it might not.

Until next time...the market is YOURS!

What is Trading to You?

David John Hall — Wed, 23 Feb 2011 22:39:04 -0800

What is trading to you? What does it mean? Is it a way to get rich quick? Is it a way to challenge yourself? Is it a job? Is it your primary job? Is it your second job? Something you do when you get home from another full time job...that you most likely dislike...strongly...

Trading appeals to so many people. To some it appeals because it looks easy to do. Those traders usually don't last long. They seem to drop out around the time when they find out that trading is not easy. To others, trading appeals to them BECAUSE it is hard. It's a challenge. A discovery. A puzzle. They want to solve it. Without realizing it can't be solved because it isn't there to be solved. Because the market isn't the puzzle, THEY are the puzzle.

To others still, trading is potential. Even if they never realize this potential, just knowing it exists is enough to keep them coming back...and enjoying every minute.

The market is so many things to so many people because the market is all of us. We are the market and the market is us. Instead of trading the "market", imagine trading yourself...your shortcomings...you fears...your expectations. Notice yourself in the market...notice how it feels...

I once had the idea that if losing money in the market is easy then making money in the market should also be easy. I'm still not sure about the answer to that question...

Until next time...

Are You a Happy Trader? or Are You a Stock Market Ogre?

David John Hall — Wed, 23 Feb 2011 20:39:29 -0800

To continue on this topic of "flow" in the market and in your trading that I've been on lately, the thought popped into my head this morning:

Am I Happy Trader?

Without a doubt, I can answer this question with a resounding YES! I AM A HAPPY TRADER! There's nothing I love more than looking through charts for that killer hidden gem of a set up -- or looking through beaten down stocks to find the great value play -- or looking at surging stocks for the momentum winner with legs still left in it. There really is nothing better to do.

Grumpty Dumpty Goes to Market

But alas, it was not always this way. I used to be a pretty grumpy trader. Okay, I was a freaking PISSED OFF trader. And many a day was spent yelling at the monitor, hurling keyboards across the room, slamming sofa cusions, yelling at myself in the mirror.

You idiot! you bought the top again. Gawd! You moron. When are you gonna learn? How could you not pull the trigger on the 50% 1 day gainer? It was right there in front of you!

Does this sound familiar to you at all? You blame yourself. You blame the government. You blame Bernake. You blame the Market Makers. And who even knows who else. Heck, you probably blame the internet company for their slow cable speed. All I can say is that life SUCKED when I was stuck in the blame game.

Don't Trade Stressed You Freaking Stress Bucket!

Now, when it comes to emotional states, a whole SLEW of motivational writers (including Mark Douglas - from Trading in the Zone) say that we perform at our peak when we are happy, when we're smiling and when we're positive. Do I know why? Not really. LOL Does it matter? No really. I'm sure it has something to do with more energy, increased focus, heightened senses when you're happy, but nonetheless, happiness helps.

So how did I stop being a stock market Ogre and start having fun while trading? Well, first I looked at all the ways I was stressing myself out. Trading against the trend, trading WAY TOO LARGE for my account -- aka -- loading up on single positions in sketchy stocks. Over trading. In out in out. Not closing out trades when they hit my stop, and simply waiting for them to come back. Thinking I had to (or could) hit all the winners to make money.

You name it, I was doing it. And when I put an end to those negative behaviors I started to have a blast in the market! Seriously. No doubt! I love it! I'm still not as profitable as I would like to be -- are any of us? -- but the days of keyboard smashing are far behind me.

Finding the Trading Method That Works For Your Rocks!

Seriously. I remember that first trend trade I caught. Just rode it up and up and up for a 50% gain. All the while other frustrated traders were calling an end to the rally. Screaming manipulation. Yelling foul! Yet the trend continued. Could it really be foul for one person and not foul for another? Yes! And the sooner you figure out what that means, the better. For more on my first losing trade and how I learned that manipulation was the least of my worries, click here. For a small article on my first 100% gain, check this out.

Until next time...

Inspiration, Positive Energy and Flow, How to Increase Trading Performance by a Factor of 10

David John Hall — Mon, 21 Feb 2011 18:06:16 -0800

I'm reading a GREAT book right now about performance enhancement and our ability to increase our performance by a factor of 10 if we just get out of our own way and let what we already know shine through without inhibition. Sound good? It does to me!

The book is called You ALREADY Know How to be Great by Alan Fine and it states that the REAL key to increasing performance doesn't come from reading books, or getting secret information, but instead, comes from removing mental resistance.

GOT (INNER) GAME?

If you haven't heard already, trading is very much a mental game. Fear, greed, self doubt can all weak havoc on our ability to create consistent profits. A bad fill, a strong gap against us, a loser that we let run on FOREVER, all have the power to seriously take us out of the game and take away months of profits in a few days. Because of this strong mental aspect, trading is much like the game of golf.

In fact, the author poled a group of golfers asking them how much of golf is mental compared to how much of golf is physical. Golfers seemed to agree that as much as 85% of the game of golf is a mental game. The author then asked this same group to explain how much of their training is focused on the mental aspect of the game.

As you can guess, not much. Golfers prefer to focus their time hitting the ball, mastering their swing, spending money on new clubs, shoes, etc. Why? Why spend 85% of your time on something that affects 15% of your game? Why not spend 85% of your time on something that affects 85% of your game?

A LIGHTBULB WENT OFF

I can relate to this directly. I have a friend who I play racquetball with from time to time. When we first decided to play it had been years since I'd hit the court so I picked up a cheap racquet and met him at the gym. Turns out we'd both bought the same (low) quality racquet so we were pretty evenly matched. In equipment at least. Growing up I'd played a lot of r-ball and that learned skill came back pretty fast. In no time flat I was ruling the court. Nice.

What happened after this is the interesting part. Each week, for at least a month my friend showed up to play with more and more gear. New glove. Upgraded racquet. Even more expensive racquet. Yet I was still playing with the same cheap racquet and I was winning.

That day I thought about what it would take for my friend to beat me at racquetball, or even to improve his game -- and little to none of those ideas involved buying new gear. A light bulb went off in my head. The same must be true of trading.

WHEN IN DOUBT - DON'T BUY MORE CRAP!

When trading isn't working, what's the first thing we do? Buy books, seek out new indicators. Better data. Gurus. Anything but look in the one place that really matters: inward. If we did we'd see there's only a few things that really make you better: practice, focus, clearing your mind, getting out of your own way, pulling the trigger, learning from past mistakes, reviewing winning trades.

So why not set aside a portion (most) of your day to work on the inner game? Focus on a goal, let thoughts drift out of your head, imagine yourself executing trades in a calm, rational manner, both winners and losers. See the joy of trading, the accumulation of capital. Watch trades go against you and then watch as you close them out effortlessly. Watch trades hit target. Watch yourself letting winners run. See yourself surrounded by luxury, all fruits of your trading successes. Really get into this. Each day. Who knows, it just might be the missing link you need to take your trading to the next level. It sure was for me.

Until next time...

Happy President's Day Everyone!

David John Hall — Mon, 21 Feb 2011 06:09:19 -0800

Happy President's Day everyone. It's days like today when I realize just how much I love trading -- when I can't do it. No market, no trades, no buzzing charts -- what's a trader to do? Well, in that same vien, today's a good day to realize that I, we, all have a life outside of trading.

Impossible to believe, I know, but it really is good to step away every once in a while, take a break, and do something non market related. Here's what I like to do:

Mountain bike, workout, surf, read, write, blog, run, hang out with friends. No doubt, some of that stuff is still market related (like this blog post, LOL) but you get my drift. Give yourself a breather every now and then (especially if you're losing) and do something non market related -- you'd be suprised how refreshed you are when you come back.

Oh yeah -- now that's what I call a breather.

David John Hall

The Week Ahead

David John Hall — Sun, 20 Feb 2011 11:41:20 -0800

No doubt, this has been a bull market rally with legs! The correction that everyone has been waiting for has simply failed to arrive, leaving more than a few traders frustrated and confused. Whenever this happens the battle cries of manipulation can be heard from sea to shining sea. As if the market ever does what we want it to do when we want it to do it.

Instead, the market cries for you to be open minded, resourceful and focused. If the market is going up then the market is going up. The best you can do is watch what the market is doing NOW and either trade it or get out of the way. The worst thing you can do is want it to behave according to your analysis. That way of trading creates blown up accounts and failed traders.

So, for the week ahead I am planning to stay as alert as possible. Do I think the market is over extended? Yes! Do I see that the market is still going up? Yes. A wise trader (I forget who) (maybe Seykota) remarked that trading against a heavily trading market is like trying to pick up nickles in from of a steam roller.

Sounds about right. Before we go, let's take a look at a chart of the market and see if we can tell which way it is going NOW.

Yep, still going up. Now, let's take a look at a steamroller.

Yep, that will kill you.

David John Hall
Founder, CEO
RetailTrader.Net, LLC

New Site Launch!

David John Hall — Sun, 20 Feb 2011 10:47:15 -0800

I'm excited to announce the new site launch of RetailTrader.Net. It's bee a lot of hard work, but the results speak from themselves. As usual, all of the vital information that you need is easy to find and at your fingertips. Market charts, sector charts, real time charts, market news and commentary are all available. Along with this inforamtion, you can also find out about our strategy, the stocks we're looking at, how we view trades, why we make trades and the results of those trades.

Coming soon, RetailTrader.net will be hosting trading competitions spanning the range from day trading to position trading with an eye toward creating the most rewarding educational experience available.

So have at it! I hope you enjoy the new site and all it has to offer. As always, let me know if you have any comments or questions regarding the site or trading in general.

David John Hall Founder, CEO

Momentum Trading Explained

David John Hall — Wed, 1 Dec 2010 07:37:04 -0800

Momentum. That's what I like. Movement. I like to see stocks come out of nowhere, for reasons no one can seem to piece together, and just rocket to the stratosphere. Like this move in TSLA:

I mean, these guys are not messing around. A nice 65% move for this maker of electric sports cars. And no signs of slowing down.

On this topic, Pradeep Bonde of StockBee has put together a killer post explaining momentum. Do yourself a favor and check it out. Meanwhile, I'll keep looking for my Wilfs!

David John Hall
RetailTrader.Net | The Market Is Yours!